Utility-Consistent Poverty in Ethiopia, 2000- 2011: Welfare Improvements in a Changing Economic Landscape David Stifel (Lafayette College, USA) Tassew Woldehanna (Addis Ababa (University, Ethiopia) UN-WIDER Development Conference Inclusive Growth In Africa: measurement causes and Consequences 20-21 September 2013, Helsinki, Finland
Outline • Motivation • Objectives • Methods and data • Context • Region specific poverty line estimates • Poverty and inequality: 2000-2011 • Concluding remarks
Motivation • Since 1995 and especially 2000, the Ethiopian economy has experienced strong economic growth and structural improvements, which may have impact on poverty reduction • However, measuring poverty is complicated because of conceptual and practical issues: – Consistency and specificity of poverty estimates across time and space • Different commodity list and recall period over time which affects level of reported consumption • Specificity of poverty lines across space • This important for Ethiopia, as a large country with population of 80 million, and diverse in culture (80 ethnic group) and agro- climatic conditions
Objectives • The purpose of this paper is analyze poverty (monetary supported by non-monetary) in Ethiopia between 2000 and 2011 – using nationally representative household consumption expenditure surveys, and – applying toolkit of Arndt and Simler’s (2010) utility- consistent approach to calculating cost-of-basic-needs (CBN) poverty lines • Put the monetary poverty measures in context by comparing them to other macro- and micro- economic and non-economic indicators
Method and Data • utility-consistent approach (the toolkit) to estimate poverty involves – calculating region-specific poverty lines based on consumption patterns of the poor in each of the regions to reflect local perceptions of poverty (i.e. specificity). – ensure that each of the consumption bundles in the region-specific CBN poverty lines also represents the same level of utility (i.e. consistency), – employ a maximum entropy approach to reconcile cases where revealed preference conditions are violated
Method and data…. • When analyzing poverty choices are needed regarding the (i) welfare indicator, (ii) the threshold between the poor and the non-poor (poverty line), and (iii) the measure of poverty • We used money measure of welfare – per capita household consumption • The household level consumption aggregate is constructed by aggregating food and non-food expenditures
Method and data…. • We estimated estimate poverty lines (using the toolkit prepared by Arndt et al (2013) for 20 spatial domains in Ethiopia (Addis Ababa, Harari, and urban & rural areas for 9 regional states) • Food poverty lines are estimated first - anchored to calorie requirements - to ensure specificity for each domain • Poverty line is based on the demographic structure and fertility patterns in each domain
Method and data….. • we employed the Foster-Greer-Thorbecke (1984) class of poverty indices to measure levels and changes in poverty – We also employed standard tests of stochastic dominance – we use the poverty lines ( cost of living index ) to map nominal household consumption to real household consumption using indexes constructed from these poverty lines (Blackorby and Donaldson, 1987) • the distributions of real household consumption are then used to conduct dominance tests and measure inequality
Method and data…. • The primary data sources used the year 2000, 2005 and 2011 from HICES (monetary) and WMS (non- monetary) • Coverage of the three surveys are similar (major urban areas, rural regions, and other urban areas), • the sample sizes grew from 17,332, to 21,274, to 27,830, for the 2000, 2005 and 2011 surveys, respectively • the numbers of food items used in the data collection process were 252, 872 and 653 in the 2000, 2005 and 2011 surveys, respectively
Context: over all and agricultural growth • Fundamental structural changes took place in the economy led by the Ethiopian government’s deliberate strategy of Agricultural Development-Led Industrialization (ADLI) • with the exceptions of 2001 and 2002, the real value of agricultural production in Ethiopia grew by roughly 9 percent per year on average. • Resulting the doubling of real agricultural GDP between 2000 and 2011 • Much of this growth was driven by increased production of cereals, which account for 3/4 of cultivated area • Ethiopia has implemented Productive Safety Net Program (PSNP) since 2005 helping yearly 8 million rural poor (largely public work and limited direct support)
Context: agricultural growth 5.0 4.5 4.0 3.5 Millions of Metric Tonnes 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Maize Teff Sorghum Wheat Barley Other
Context: GDP growth GDP in million Birr 250 200 Billion Birr 150 - Agriculture - Industry 100 - Services 50 0 Y2000 Y2001 Y2002 Y2003 Y2004 Y2005 Y2006 Y2007 Y2008 Y2009 Y2010 Y2011
Context: GDP growth Per Capita GDP (in 2010 Birr) 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Y2000 Y2001 Y2002 Y2003 Y2004 Y2005 Y2006 Y2007 Y2008 Y2009 Y2010 Y2011
Estimates of Poverty line • Between 2000 and 2011, the costs of basic needs rose by over 150 percent • Most of this increase occurred between 2005 and 2011 • Throughout the survey periods, the changes in prices for both food and non-food items contributed to overall changes in costs of basic needs, – non-food costs rose slightly faster than food costs between 2005 and 2011.
Estimates of Poverty line • The poverty lines estimated also show that substantial variation in costs of basic needs across regions – e.g. in 2000 the rural Amhara poverty line was 20 percent below the Addis Ababa poverty line, while the rural Dire Dawa poverty line was 12 percent higher than in Addis Ababa. • These differences in level and changes of poverty lines lend credence to the need for specificity in constructing poverty lines
Poverty and inequality : 2000-2011 • There is a steady but uneven progress, with urban areas witnessing the greatest gains in the first half of the decade, and rural areas benefiting more in the latter half • Moreover, other monetary and non-monetary measures of well-being confirm the general pattern of persistent improvements,
Poverty and inequality : 2000-2011.. Levels % age changes 2000 2005 2011 '00-'05 '05-'11 '00-'11 National Headcount Ratio (P 0 ) 51.9 44.5 30.0 -7.5 -14.5 -21.9 Depth of Poverty (P 1 ) 14.6 11.7 8.2 -2.9 -3.6 -6.5 Severity of Poverty (P 2 ) 5.7 4.2 3.3 -1.5 -0.9 -2.4 Urban Headcount Ratio (P 0 ) 40.8 21.7 13.9 -19.1 -7.8 -26.9 Depth of Poverty (P 1 ) 11.9 4.4 3.4 -7.4 -1.0 -8.5 Severity of Poverty (P 2 ) 4.7 1.4 1.3 -3.3 -0.1 -3.4 Rural Headcount Ratio (P 0 ) 53.7 48.2 33.2 -5.5 -15.0 -20.5 Depth of Poverty (P 1 ) 15.1 13.0 9.1 -2.1 -3.9 -6.0 Severity of Poverty (P 2 ) 5.8 4.7 3.7 -1.1 -1.0 -2.2
Poverty Incidence Curves, Ethiopia, 2000-2011
Poverty and inequality : 2000-2011
Poverty and inequality : 2000-2011
Inequality • The degree of inequality in Ethiopia is in general very low compared to many, • inequality rose over the course of the decade • Gini Coefficient increased from 0.29 in 2000 to 0.33 in 2011, • Theil Index rose from 0.16 to 0.22 • Level and changes is higher for urban than for rural
Inequality
Non-monetary measure of well-being • Changes in monetary poverty is accompanied with changes in non-monetary poverty • See the following sides on – Stunting – Infant mortality rates – Net enrolment – Literacy
Non-monetary measure of well-being
Non-monetary measure of well-being
Non-monetary measure of well-being
Non-monetary measure of well-being
Concluding remarks • fundamental structural changes took place in the economy • improvements in the physical infrastructure, better access to improved agricultural inputs, and widespread social safety nets may have created a conducive environment for poverty reduction • Poverty declined from substantially over a period of 10 years: from 52% to 30%
Concluding remarks • The decline in poverty has matched with the changes in other monetary and non-monetary measures of well-being • This confirms the general pattern of persistent welfare improvements in Ethiopia over a decade • It also indicates that the poverty estimates for Ethiopia are largely a reflection of long-term trends in the broad-based growth and improved welfare • No doubt for the decline of poverty, but the degree to which poverty fell over time must be interpreted cautiously as there are some comparability issues across time related to the data sources used
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